Chapter 14

Money enables society to gain which of the following advantages?

human specialization and geographic specialization

Which of the following results in the depreciation of a country's currency and may cause more stable currencies, such as the U.S. dollar or the European euro, to come into widespread use?

hyperinflation

An asset's ______ is the ease with which it can be converted quickly into the most widely accepted and easily spent form of money, cash, with little or no loss of purchasing power.

liquidity

Money is used for buying and selling goods and is therefore considered what?

medium of exchange

Which of the following are functions of money?

medium of exchange, unit of account, store of value

A unit of account is a function of what?

money

Which of the following is a "stock" of some item or group of items that is used as a medium of exchange?

money

M1 is a component of the U.S. ______.

money supply

True or false: Commercial state banks are private banks chartered by the individual states to operate within those states.

True

Who issues metal coins?

U.S. Treasury

Which of the following comprise the currency of the United States?

metal coins and paper money

Money is a medium of ___ that is used for buying and selling goods and services

to exchange

Metal coins are issued by the US

treasury

Which of the following are direct roles of commercial banks?

Make available a wide variety of loans Keep money safe until demanded via checks Accept deposits of households and businesses

What happens when the consumer price index, or "cost-of-living" index rises?

The purchasing power of the dollar falls

Checkable deposits are the debts or liabilities of which of the following?

Thrift institutions Commercial banks

True or false: Hyperinflation may cause stable currencies such as the U.S. dollar or the European euro to come into widespread use because a country might adopt a stable currency as its own official currency

True

True or false: Hyperinflation may cause stable currencies such as the U.S. dollar or the European euro to come into widespread use because a country might adopt a stable currency as its own official currency.

True

True or false: People can convert checkable deposits into paper money and coins on demand.

True

True or false: The currency of the United States consists primarily of metal coins and paper money.

True

The debts or liabilities of commercial banks and thrift institutions are known as _____ deposits.

checkable

People can convert ____ deposits into paper money and coins on demand.

checking

The safety and convenience of ______ has made checkable deposits a large component of the M1 money supply.

checks

Which of the following are primary depository institutions that accept deposits of households and businesses, keep money safe until it is demanded via checks, and in the meantime use it to make available a wide variety of loans?

commercial banks

Which of the following are components of M1?

currency in the hands of the public, all checkable deposits

Because people accept them as money, ______ and ______ deposits are money.

currency; checkable

The central banks accept as ______ from the banks and thrifts any portion of their mandated reserves not held as vault cash.

deposits

The Federal Reserve Bank loaned money to banks and thrifts and charged an interest rate called the _____ rate.

discount

What is the interest rate charged on loans from the Fed to banks and thrifts in their district?

discount rate

Money functions primarily as a medium of _______ , a unit of _____ , and a store of value.

exchange; account

Who establishes reserve requirements or the fraction of checking account balances that banks must maintain as currency reserves?

fed

The money supply in the United States essentially is "backed" by whose ability to keep the value of money relatively stable?

government

Appropriate fiscal policy that is supportive of efforts of the nation's monetary authorities is meant to control ______.

inflation

Studies show that countries that have independent central banks like the Fed have lower rates of ____ , on average, than countries that have little or no central bank independence.

inflation

Studies show that countries that have independent central banks, such as the Federal Reserve Bank, compared to those that have little or no central bank independence, have lower average rates of ______.

inflation

The ease with which an asset can be converted quickly into cash, with little or no loss of purchasing power, is called what?

liquidity

Commercial bank ____ provide short-term financial capital to businesses and the financing of consumer purchases such as durable goods.

loans

The supply of _________ in the United States essentially is "backed" (guaranteed) by the government's ability to keep its value relatively stable.

money

What type of operations serve to control the nation's money supply and influence interest rates?

open market

The 12 Federal Reserve Banks are quasi-public banks, which blend ____ ownership and public control.

private

The amount of goods and services a unit of money will buy is called ______.

purchasing power

The Federal Reserve Bank sets ______ which are the fractions of checking account balances that banks must maintain as currency reserves.

reserve requirements

Which of the following characteristics of checks has made checkable deposits a large component of the M1 money supply?

safety and convenience

Federally chartered banks are required to purchase ______.

shares of stock in the Federal Reserve Bank in their district

Private banks chartered by the individual states to operate within those states are called ______.

state banks

Money is a ______ of some item or group of items that is used as a medium of exchange.

stock

Which of the following are functions that the Federal Reserve Banks perform?

- Issuing currency - Providing for check collection - Lending money - Setting reserve requirements and holding reserves

The 12 Federal Reserve Banks implement the basic policy decisions of the ______.

Board of Govenors

The United States' Federal reserve system consists of how many regional banks?

12

Who implements the policy decisions related to the monetary control of the U.S. money and banking systems?

12 federal reserve banks

Why are currency and checkable deposits money?

Because they are widely accepted by people

Who directs the activities of the 12 Federal Reserve Banks in the U.S. banking system?

Board of Governors

Who is the central authority of the U.S. money and banking system?

Board of Governors of the Federal Reserve

Which two of the following are necessary for price level stability?

Careful management of interest rates Intelligent management of the money supply

Which of the following were deemed by Congress in the early 20th century to be essential for an efficient banking system?

Centralization and public control

When the consumer price index, or "cost-of-living" index rises, the purchasing power of the dollar goes ___ (up/down).

Down

True or false: Money supply M1 includes all components of M2

False

True or false: Society can attain a higher degree of specialization without the use of money than it can with money

False

Who is responsible for issuing currency, setting reserve requirements and holding reserves, lending money to financial institutions, and providing for check collection?

Federal Reserve Banks

In the United States, the monetary authorities are members of the Board of Governors of what institution?

Federal Reserve System

In the United States, the monetary authorities are members of the Board of Governors of the ____ System. (Enter one word in each blank.)

Federal reserve

The purpose of open-market operations is to control the nation's money supply and influence ____ (Enter one word) rates.

Interest

If the price level doubles, what happens to the value of the dollar?

It declines by 50%.

Currency in the hands of the public and checkable deposits are components of ______.

M1

What is the money in the form of currency and checkable deposits in commercial banks called?

M1

A second and broader definition of money includes which of the following?

M1 plus several near-monies

The 12 Federal Reserve Banks also serve as ______ banks.

bankers

Because money is a medium of exchange, society avoids:

barter

Token money consists of _____.

bills or coins with face values that exceed their commodity value

Just as banks and thrifts accept the deposits of and make loans to the public, the ______ accepts the deposits of and makes loans to banks and thrifts.

central bank

When people measure the worth of various items in terms of money, money is performing the function of a what?

unit of account

Early in the 20th century, Congress decided that ______ and public control were essential for an efficient banking system.

centralization

If the price level doubles, the value of the dollar declines by ____ %.

50%

The central authority of the U.S. money and banking system is the _____.

Board of Governors of the Federal Reserve System

How does money enable society to avoid the complications of barter?

By acting as a medium of exchange

The 12 ____ banks blend private ownership and public control, making them quasi-public banks. (Enter only one word per blank.)

Federal reserve

Which of the following is a function of commercial bank loans?

Finance consumer purchases of durable goods Provide short-term financial capital to businesses

Who accepts as deposits from the banks and thrifts any portion of their mandated reserves not held as vault cash?

central banks

The ____ power of money is the amount of goods and services a unit of money will buy.

purchasing

Currency that derives its value from the amount printed on it rather than from the value of the paper or metal from which it is made is referred to as ______ money.

token